Because of its geographical location and energy independence, the U.S. oil market has been somewhat insulated from the adverse impact of the Middle East supply shock –  at least relative to the rest of the world, particularly Europe, the Far East and broader Asia. Given the interconnectedness of the market, however, this comparative isolation is changing, with a profound impact on every segment of refining activity.

An acute global shortage has been observed in diesel and jet fuel supply. Margins in the middle of the barrel have been rising, incentivising refineries around the world to maximise the production of these products. This is particularly true for the U.S., as it has become the world’s swing producer and exporter of crude oil and refined products. Jet fuel and diesel crack spreads have been outperforming those of gasoline from Europe to Asia. U.S. refiners, which have been partially inoculated from the Persian Gulf fallout and continue to operate comfortably above 90% of their nameplate capacity, have had a strong economic incentive to respond.

The knock-on effect of concentrating on diesel and jet fuel production, however, is becoming increasingly visible, as illustrated in the accompanying chart. It is a seasonal phenomenon for U.S. commercial gasoline stockpiles to decline as the summer driving season approaches in the Northern Hemisphere. The recent fall below 215 million bbls, nonetheless, is statistically low. At present, inventories of this product are 5% lower than during the same period in 2025 and show a deficit of 3.1% to the long-term seasonal norm. The U.S. gasoline market is becoming undersupplied.

Help from the usual source will be unavailable. The U.S. East Coast has traditionally relied on European gasoline imports to make up potential shortfalls in domestic supply. This will not happen this year, as European refiners have been forced to cut runs due to scarce crude availability, while elevated freight rates will also impede shipments to the U.S.. The arbitrage window from Europe will plausibly remain closed throughout the summer.

An increase in U.S. retail gasoline prices might help to alleviate the developing tightness, but meaningful demand destruction is only likely to occur when pump prices reach $5.50 to $6.00 per gallon, considerably above the current level of $4.60 per gallon. Although the August RBOB/WTI spread from CME Group, presently around $44/bbl, is at the higher end of the historical range, given its inverse correlation with domestic gasoline stocks, it is more likely to strengthen further rather than reverse toward the long-term mean.